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Outside In | Why Hong Kong could be rare exception to coming global winter of discontent despite recession
- Economists seem convinced the global economy is going to suffer mightily as government, household, corporate and financial-sector debt come home to roost
- Hong Kong is in recession, but its negligible debt and inflation levels mean its winter could be less discontented than many others
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Nouriel Roubini might often be deemed “Doctor Doom”, but he has a nasty habit of being right. So when he talks about the “unavoidable crash”, we should take note.
And when an army of other economists begin to follow suit, our policymakers would be rash not to batten down the hatches. Financial Secretary Paul Chan Mo-po caught the right note in the Legislative Council earlier this week when he promised that the government would be prudent in its fiscal spending, but many leaders worldwide have yet to get the memo.
Roubini, professor emeritus of economics at New York University’s Stern School of Business, pulled no punches in an article last week. The world is “lurching toward an unprecedented confluence of economic, financial and debt crises”, and this “mother of all stagflationary debt crises” cannot be avoided.
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Beyond the commonly discussed challenges created by the Covid-19 pandemic, the energy, food and supply chain crises triggered by a combination of the Russian invasion of Ukraine and the pressing need to move away from fossil fuels because of global warming, Roubini points to one factor above all others: unprecedented indebtedness. It’s not just government debt, but household, corporate and financial-sector debt as well.
Households will be squeezed as mortgage repayment costs soar. Governments under pressure to rebuild healthcare systems in the wake of the Covid-19 pandemic have to contend with soaring debt service costs. Unctad says low-income countries last year spent almost 10 per cent of revenues on servicing their debts.
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Roubini notes that debt in advanced economies is 420 per cent of global GDP. Overborrowing has happened for decades, he says, and many borrowers are set to become “insolvent zombies” hit by a triple whammy of a sharp jump in debt repayments, a sharp drop in real incomes eroded by inflation and a sharp fall in asset prices, particularly housing prices.
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